Chris Gregory, CEO and co-founder of Squawker explains how he modernised the art of sellside conversation.
Can you describe the Squawker offering?
It is a high touch neutral venue for pan-European trading but it is for the sellside only. In some senses it is like the traditional way of human negotiation but we have given it a modern look with a cloud application and social networking principles. It is not a dark pool but allows traders to find, negotiate and execute difficult blocks on an anonymous basis. This could range from a mid-cap desk trying to work a block trade in illiquid stocks to a block of highly liquid securities that might be impacted by algorithms and suffer from implementation shortfall. Traders have control over the entire trading process from liquidity discovery through to negotiation and trade execution.
The name Squawker comes from the ‘Squawk box’, an intercom speaker that used to be commonly used on trading floors for brokers, traders and analysts to communicate market events and information about block trades. We rolled the platform out in April and have so far been very pleased with the initial response in that over 70 sellside participants spread across 13 different European countries have joined. There has also been a good cross-section of styles from programme trading to baskets and transition management as well as different types of sellside firms. They range from the large Tier 1, global investment and European regional banks to smaller niche players that have a specific orientation.
Who is providing the ‘back office’?
BNP Paribas Security Services serves as the central settlement provider for all trades conducted on Squawker, and the platform has completed its integration with various vendor-provided systems such as Fidessa’s order management system, ULLINK and BT Radianz. While the larger institutions have proprietary implementations, the idea is that other sellside firms can utilise their existing connectivity to ease the on boarding process.
What were the drivers behind Squawker?
For such a long time the conversation had been about algos, direct market access and latency. However, if you look at where the trading was taking place, around 60% to 70% was going through the order books but that percentage was not growing. Whilst some trading was resting in dark pools and retail platforms there was still 10% to 15% of trading that was manually negotiated over the phone and Bloomberg chat. The other trend we noticed was that the buyside had very competitive solutions. They were able to source liquidity from many different providers. Also, if they were having trouble executing a block order in the order book then they were able to give that basket, programme or block trade to their broker. However, for the broker or investment bank, there was no central solution, utility or forum to interact against each other, particularly where they compete with each other. We spotted this gap and decided to provide a solution.
What about the pricing?
Squawker participants execute pan-European block trades at mid-price, guaranteed volume weighted average price (VWAP) or limit-price. Users commit to trade a minimum size (percentage of average daily volume) and then enter into private and anonymous person-to-person negotiation to build the block quantity. When the trade is completed, invites are sent to other users to continue trading. It is not complicated.
There are no algorithms?
That is correct. It is a very structured negotiation between two human beings. It is quite simple in that it is purely button driven. The software is highly intuitive and access is via a stand-alone graphical user interfaces (GUI) or a standard FIX connection, direct to the user’s existing order management systems. We also provide full electronic audit trails that can be loaded into compliance and performance measurement systems of the sellside firm.
What have been the major challenges with the roll-out?
They are the same with any project in the sense that it revolves around the realisation, delivery and co-ordination. We have been working to on-board customers and to create a critical mass and that is just hard work.
We have just finished with the initial roll-out and all our focus is on growth and expanding the client base and trading activity. There are roughly 400 institutional sellside firms across Europe and of course we would like to on-board all of them. At the moment we are averaging around three new firms a week and we have around 20% of the market. Our goal is to have 100 signed on by December. London, which is the biggest financial market, as well as other Northern European markets have been among the first but we are also targeting the rest of Europe. It takes times and is relationship based. The goal is as we grow, our utility can add real value.
Looking at the bigger trends, what changes do you see in the industry in general?
Ironically the more things change, the more things stay the same in the sense that competition has always been relentless, as is the need to innovate. I think though that the conversation has moved on from being only about algos, DMA and speed to also remembering it’s about the quality of service that sellside firms now can provide their customers. Squawker is one of the tools to help the sellside provide the best service to their customers.